FOREX-Euro selloff abates, German ZEW may offer brief respite

Reuters Staff

4 Min Read

* Euro steadies, but hedge funds seen sellers

* British pound near 16-month high vs euro on rate outlook

* Swedish crown rises after inflation data

By Anirban Nag

LONDON, May 13 (Reuters) - The euro stabilised near one-month lows against the dollar on Tuesday, as the recent selloff abated before a survey of German investor sentiment that might show some improvement in morale in Europe's biggest economy.

Still, any rallies are likely to be short-lived, with hedge funds seen as the main sellers. Speculation that the European Central Bank will ease monetary policy next month and its apparent concern about a strengthening currency and its impact in subdued inflation will cap the euro, traders said.

The euro climbed to $1.3770, away from its one-month low of $1.3745 hit on Friday, having shed 1.2 percent since ECB chief Mario Draghi said the bank was ready to take action next month to lift economic growth. Near-term support is at its 100-day moving average of $1.3741, which could be tested if the sentiment survey falls short of expectations.

The German ZEW survey for May is due at 0900 GMT. The current situation index is forecast to have risen to 60.5 from 59.5, while the expectations index is forecast to have declined to 41 from 43.2. Last month, worries about a conflict between Russia and Ukraine was a drag on investor morale.

"The main worry for the ECB is inflation, and if there is any improvement in the ZEW, it will not be a game changer," said Yujiro Goto, currency strategist at Nomura.

"We see the euro trading with a downward bias given the market is expecting some kind of easing from the ECB next month. It is still not clear whether it will do quantitative easing, but a rate cut is more likely."

Goto added that unless U.S. data improved significantly, the euro's move lower was likely to be more of a grind rather than a fast-paced decline. U.S. retail sales for April are due later in the session and are expected to show a sales slowed after a sharp rise in the previous month.

Daisuke Uno, chief strategist at Sumitomo Mitsui Bank, noted that the euro had broken below a channel of support connecting its July 2013 low of $1.2755 and February low of $1.3482.

"(The ECB's) easing may not end in June. The euro's uptrend since last summer is likely to have ended," said Uno.

SWEDISH CROWN RISES

The Swedish crown rose to a day's high against the euro after monthly inflation printed above expectations. The euro fell 0.3 percent to 9.00 crowns after the data was released from 9.0420 crowns beforehand.

Against sterling, the euro stood at 81.60 pence, having hit a 16-month low of 81.43 on Monday. The pound was buoyed by prospects of rate hikes by the Bank of England, perhaps as early as later this year.

Data from retailers showed British retail sales jumped in April as rising house prices encouraged shoppers to buy new furniture, flooring and other home decor over the Easter holiday weekend.

The yen ticked down to a one-week low against the dollar as improved risk sentiment sent U.S. share prices to record highs.

The yen traded at 102.32 yen to the dollar. (additional reporting by Hideyuki Sano in Tokyo; Editing by Larry King)